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Consistently sustaining industry leading margins

Shree Cement’s (SRCM) Q3FY22 standalone EBITDA of Rs8.3bn (down 24% YoY) was marginally lower than our / consensus estimates. Blended EBITDA/te decline was restricted to 11% QoQ (and 17% YoY) to Rs1,260/te (I-Sec: Rs1,328/te), thus sustaining industry leading profitability even in a challenging quarter. Volumes declined 8.6% YoY due to lower volumes in the East region, while cement realisation likely rose ~2% QoQ (our view) owing to better prices in North. The Board reappointed Mr. Prashant Bangur as Joint Managing Director of the company for a further five years and also declared an interim dividend of Rs45/sh. Factoring in higher costs escalations, we cut our FY22-24E EBITDA by 7-10% and reduce our target price to Rs29,700/sh (earlier: Rs31,175) based on 17x FY24E EV/E. We factor 12% volume CAGR over FY22-24E and expect SRCM to sustain industry leading profitability as well. Maintain BUY. Key risks: Lower demand / pricing.

Standalone revenues of Rs35.5bn (up 7% YoY) was ahead of our estimate of Rs34.2bn, mainly led by one-off sale / purchase of coal inventory to UAE subsidiary UCC and likely higher power sales YoY. Cement plus clinker volumes declined 8.6% YoY (up 3.7% QoQ) to 6.55mnte owing to extended monsoon and sand mining issues in Bihar and transportation strike in Chhattisgarh, thereby impacting its volumes from the East market. Blended realisation was up 6.8% QoQ (and 16.8% YoY) to Rs5,422/te led by QoQ price increases in North, one-off sale of coal inventory to subsidiary UCC, and higher non-cement revenue.

Standalone EBITDA fell 24% YoY to Rs8.3bn, marginally lower than our estimate. Blended EBITDA/te decline was restricted to 17% YoY / 11.4% QoQ to Rs1,260/te (ISec: Rs1,328/te). Total cost/te rose 33% YoY / 14% QoQ owing to sharp increases in various input prices. Freight cost/te increased 4% QoQ / 2% YoY due to higher diesel price. Raw material and power & fuel cost/te grew sharply by 37.5% QoQ and 72% YoY, respectively, on higher fuel prices and one-off purchase of coal inventory for subsidiary UCC. PAT fell 21.4% YoY at Rs4.9bn (I-Sec: Rs5.2bn).

Volume visibility remains high. SRCM recently commenced commercial production at its clinker grinding unit having capacity of 3mnte in Pune, Maharashtra. It is setting up 12,000tpd brownfield clinkerisation unit in Chhattisgarh, which is likely to be completed in H1FY23E with 3mnte clinker grinding unit in West Bengal expected to be commissioned in Q4FY23E. It is also setting up an integrated cement plant in Rajasthan having clinker capacity of 3.8mnte and cement capacity of up to 3.5mnte which is expected to get commissioned in Q4FY24E.

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